Composite construction contracts could not be taxed as Residential Complex Service before 1.7.2012; demand was set aside.

Composite construction contracts involving both materials and services, with materials already excluded through abatement under Notification No. 1/2006, could not be taxed under Residential Complex Service for the period before 1.7.2012. The applicable tax treatment for such composite construction activity during that period was Works Contract Service, so the demand under Residential Complex Service was not sustainable and was set aside.

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Issues: Whether the demand of service tax under Residential Complex Service was sustainable for construction contracts that were composite in nature for the period prior to 1.7.2012.

Analysis: The contracts were found to involve both materials and services and the valuation had already taken abatement for materials under Notification No. 1/2006. For the period prior to 1.7.2012, such composite construction contracts could not be taxed under Residential Complex Service. The applicable view was that demands on composite construction activity for the relevant period could be sustained only under Works Contract Service.

Conclusion: The demand of service tax under Residential Complex Service was not sustainable and was set aside.

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